State employees, teachers, police officers, government retirees - all 370,000 people who get their insurance through the State Health Plan - will see their premiums raised or benefits cut by an average $65 a month next year.

One of those workers is Mary Welch, a teacher's aide in Florence School District 3 who makes $12,798 a year. After taxes and other deductions, her check every other week is $295.

Welch, 51, already is paying $200 a month for health care and faces the prospect of $100 more for coverage for herself, her husband and her daughter, a senior at USC-Sumter.

"I love what I do," Welch said. "I'm not in it for the money, but it would be nice to take home a little bit."

How much Welch and her co-workers will take home in pay next year could be decided Tuesday, when the state's top financial officers, led by Gov. Mark Sanford, address the state's health insurance woes. Their options are to raise premiums or cut benefits - or some combination of both.

The State Budget and Control Board that Sanford chairs will examine a State Health Plan that is acknowledged to be:

?_Broke. The plan is supposed to have $110 million in reserves to pay claims. However, the Legislature waived that requirement two years ago, spending the reserves to offset premium increases and to pay for other government programs.

Today, the health plan has zero reserves. If it were one of the 433 private insurers in South Carolina, the state Department of Insurance would have taken over the State Health Plan by now.

?_Paying the price for not raising premiums it charges. From 1990 to 2000, the State Health Plan did not raise premiums charged members. During that decade, however, health care costs were rising steadily - 7 percent a year in the private sector, according to one study.

?_Generous. While private-sector employers have tried to hold down health care costs by limiting employees' options, members of the State Health Plan can go to any hospital and 99.5 percent of the doctors in the state.

State employees say the health insurance crisis is wearing down already low employee morale and hurting recruitment.

State budget cuts have meant more work, forced layoffs and resulted in no raises for three years for most state employees, they say. And, historically, good, cheap benefits have been a big reason many people take state jobs, they add.

Now, the state says it does not have money to offset the increase in health insurance costs. So instead of the state and health plan members sharing the rising costs, the price of higher premiums is falling wholly on workers and retirees.

Health care costs are rising nationwide, causing premiums to rise for most workers with private insurance and putting public programs, such as the State Health Plan and Medicaid health insurance for the poor, in jeopardy.

The state says health plan members' costs are up 12 percent a person this year, compared with 2002.

Plan director Rob Tester said lawmakers knew last spring about the pending premium increase but did not set aside any money in the state budget to offset it.

That angers Peter Whelan, a literature professor at Francis Marion University in Florence.

"To blame rising health care costs is to sidestep the issue," Whelan said. "The rise in health care costs was entirely predictable and ought to have been allowed for in state budgeting."

'WE DON'T HAVE ANY MONEY'

The State Health Plan is a self-insurer, meaning the state, other public employers, employees and retirees put money into the program each paycheck. The plan uses that money to pay out claims.

Given its size - covering almost a tenth of the people in the state, paying $919 million a year in claims - the plan should have about $110 million in reserves, according to state guidelines. That would cover claims expected to come in over the next 1½ months.

With zero reserves, however, the plan will run out of money if the state does not raise health insurance premiums charged to state workers for 2004. Tester estimates that could happen as early as March or April if no changes are made.

During the last legislative session, state Sen. Tommy Moore, D-Aiken, offered a proposal to offset the impending increases. But his proposal was part of an unpopular plan to raise the sales tax by 2 cents.

That increase did not come close to passing. Instead, Republican leaders in the House and Senate, who opposed raising taxes, cut $400 million from the state budget this year.

In spring budget hearings, health plan administrators warned that costs were rising because of factors such as the continued growth in drug prescriptions and increased use of more expensive services - use of MRIs instead of X-rays, for example.

The health plan requested $51 million more to offset those costs. However, the House and Senate rejected that request. In the midst of a statewide budget crisis, legislators spent most of their time trying to find money for schools and Medicaid.

Moore says legislators' behavior was "disgraceful," raiding employees' reserve funds, not giving raises, then refusing to offset premium increases.

"What state employee would feel good about going to work tomorrow?" Moore said.

But, said state Rep. Bobby Harrell, R-Charleston, "This isn't something unique to South Carolina state government.

"Health insurance all over the country is going up dramatically in the private sector and in the public sector," said Harrell, chairman of the House Ways and Means Committee.

As an example, Harrell, who owns an insurance agency, said his own deductibles are rising from $100 to $500, and that's for special policies available to insurance agents.

Health insurance premiums have been rising steadily since 1996, according to the Kaiser Family Foundation, a nonprofit research group. The average increase was 13 percent in 2002 and 11 percent in 2001.

Harrell said the state still pays the bulk of the health plan's costs - 76 percent on average. However, this year and last, employees have had to foot the entire bill for higher costs.

"That's part of the shock here," Harrell said. "But we find ourselves in a year where we don't have any money."

LIMITED OPTIONS, 'NO SINGLE MAGIC BULLET'

The state's five top financial officers, who make up the State Budget and Control Board, will meet Tuesday to set rates for next year. Their options are limited.

Only the General Assembly can put more state money into the plan, and it does not return until January. Meanwhile, the state's budget woes have not improved.

And because the Legislature did not raise the state's contribution, the insurance plan cannot ask its other employers - 37 counties, 79 cities, all the school districts and other entities - to raise their contributions.

That leaves the Budget and Control Board with a $162 million gap to fill if the plan is to provide the same benefits next year as this year.

Sanford and the board can:

?_Raise premiums an average of $65 a month - from $50 to $100 for a single employee, from $200 to $300 for a family

?_Raise deductibles, now at $250 for the standard plan and $100 for emergency room visits

?_Raise co-payments, now at $7 for generic prescription drugs and $22 for brand names

?_Eliminate or restrict services. The state plan pays for some services that many private plans don't, including unlimited chiropractic visits at an estimated cost of $22 million this year and in-vitro fertilization for women who have difficulty getting pregnant.

? Change how state health plan contracts with doctors and hospitals are negotiated, or how the plan works.

The state contracts with Blue Cross and Blue Shield of South Carolina to process all the plan's paperwork, and with other companies for prescription drug coverage and mental health benefits. The plan pays 4 percent of its total costs for administration - $37 million last year. Of that, $26 million goes to Blue Cross.

The Budget and Control Board staff will make some recommendations at Tuesday's meeting but would not reveal them Friday. Whatever option Sanford and the others choose must bring in about $65 a month, per member.

Everything is on the table, said Mike Sponhour, spokesman for the Budget and Control Board.

But, he warned, "There's no single magic bullet that's going to lower costs."

Any changes to the plan must be made by Aug. 15 to allow time to inform plan members before the enrollment period in October, when employees can add or change their health benefits. The changes would take effect Jan. 1.

More than 18,000 people responded to an online survey asking for opinions on whether to cut benefits or raise premiums. The Budget and Control Board had not finished tallying the results Friday.

However, many respondents were upset that the survey had no place to submit comments or offer other suggestions. Sponhour said the board heard that criticism dozens of times, "but those are the only options that exist."

'STILL ... A GREAT DEAL'

Despite its woes, some people with private health insurance look at the State Health Plan with envy.

Yes, the state plan has had premium increases in the past three years. But before that, it didn't raise its rate for a decade.

That's during a time when private premiums rose about 7 percent a year on average, according to a Kaiser study.

George King, a retired Wachovia banker, said he thinks the state plan is a good deal. King, 65, pays $830 a month out of pocket for insurance for himself, his wife and daughter.

"State employees still get a great deal," King said. "They should be happy with the new fees."

But state employees and retirees are unhappy nonetheless. Many say they took relatively low-paying state jobs because of the promise of steady benefits.

"This affects thousands of people in this state," said Sam Griswold, vice president of the Association of South Carolina State Retirees. "A lot of them are getting very worried.

"They're saying, 'What's happening here?'"

Reach Bauerlein at (803) 771-8485 or vbauerlein@thestate.com.